Credit Cards: Visa-Branded Debit Cards More Popular Than Visa-Branded Credit Cards

If you've been questioning the popularity of debit cards, here's some irrefutable evidence -- in the form of a WSJ article -- that not only are they here to stay, they may even become more popular than standard credit cards in the near future. Here a clip:

"...'The reality is that the vast majority of consumers want to pay as they go,' said Stacey Pinkerd, who oversees Visa's debit-card business.

Visa's net income leapt 71% to $536 million, or 71 cents a share, in the fiscal second quarter ended March 31, from $314 million, or 39 cents, a year earlier.

The surging popularity of debit cards largely reflects the growing use of plastic by American consumers. Credit- and debit-card purchases of retail goods and services vaulted past cash and checks in 2003. Now the recession is giving many consumers second thoughts about their credit cards. Lenders also are making it more expensive to charge purchases and lowering credit limits on credit-card users.

The U.S. government said last month that the personal savings rate rose to 5% in January, the highest level in nearly 14 years. Revolving debt, which mainly reflects credit-card loans, fell 9.7% to $955.7 billion in February, the Federal Reserve said.

'A big group of consumers like the discipline that debit spending can bring them, and that is particularly relevant in this kind of environment,' said Tim Murphy, who oversees MasterCard Inc.'s main payment products around the world.

The Purchase, N.Y., company's debit-card processing volume rose more than 13% last year, compared with a 2.2% decline in credit-card processing. MasterCard, a Visa rival, is likely to offer more details about the spending habits of Americans when it reports quarterly results Friday.

Unlike credit cards, which have balances that can be carried month-to-month, debit cards immediately deduct funds directly from a checking account. Debit cards are especially popular with younger consumers.

Debit cards are less profitable for banks than credit cards, but merchants still pay banks to accept the cards. In the past couple of years, banks have encouraged debit-card use through rewards programs. Those rewards typically are less generous than credit-card rewards.

To be sure, growth rates of debit-card transactions have slowed as Americans rein in their spending. Volume is widely expected to climb by a single-digit percentage this year, compared with more than 10% annually during the past few years. But credit-card usage is expected to keep declining.

At U.S. Bancorp, debit-card transaction volume rose more than 2% in the first quarter from a year earlier. Credit-card purchase volume fell more than 4%.

'Consumers are being more conservative in the way they manage their finances and that leads to a greater willingness to put transactions on debit cards,' said Cliff Cook, chief marketing officer for retail-payment solutions at the Minneapolis bank.

The debit-card business also gets a boost from Americans who got their first card as teenagers a decade or so ago. "As these people move into the family stages and career stages of their lives, the level of their household spending on debit cards goes up," Mr. Pinkerd said..."